Reuters: Private Equity: UPDATE 2-S.Africa's Absa buys store card business for $1.2 bln

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UPDATE 2-S.Africa's Absa buys store card business for $1.2 bln Jun 6th 2012, 12:55 Wed Jun 6, 2012 8:55am EDT * Deal boosts Absa market share in unsecured lending * Absa to also extend credit to Edcon customers By Tiisetso Motsoeneng and Agnieszka Flak JOHANNESBURG, June 6 (Reuters) - South African bank Absa will pay $1.2 billion for the store credit card business of unlisted domestic retailer Edcon, it said on Wednesday, bulking up its presence in the high-margin but riskier unsecured lending market. Under the deal, Absa, majority-owned by Britain's Barclays Plc, will also extend credit and sell other financial products to the nearly 4 million customers of South Africa's biggest clothing retailer. Banks in Africa's top economy have been pushing into the lucrative unsecured loan market, which relies solely on the customer's promise to pay back debt, to offset weak corporate demand for credit. However, household debt stands at a dangerously high level of 70 percent of disposable income, and the central bank fears that may get worse as banks expand into the sector. Edcon's store card business operates primarily in South Africa, with smaller operations in Botswana, Namibia, Lesotho and Swaziland. Absa, South Africa's biggest retail bank, which competes with Standard Bank, Nedbank and FirstRand , said it also planned to buy the business in neighbouring countries. The deal should close in the second half of the year. Edcon, which operates Edgars, Jet and Can stores, reported sales of nearly 30 billion rand ($3.55 billion) in the year to end-March. The percentage of bad debts on its store cards declined to 6.9 percent from 10.9 percent a year earlier. "Provided there's no shock to the system with interest rates going up rapidly or an increase in unemployment, it could result in bad debts improving further," said Faizal Moolla, an analyst at Avior Research. Edcon was bought in 2007 by Bain Capital LLC in a $3.5 billion deal that took the retailer private and marked the country's biggest private equity deal. Shares in Absa were up 0.16 percent at 151.14 rand by 1139 GMT, slightly under-performing a 0.9 percent gain in the JSE Top-40 index. Link this Share this Digg this Email Reprints

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